Tax Prep Chains Exploit the Poor, Hopkins Research Shows

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TaxDay

Happy tax day, everyone! 

Okay, sure, for most people today is not the happiest day of the year, largely because filling out a tax form can be a stressful and headache-inducing activity with large penalties if you mess up. Or at least that’s what many tax-prep chains want potential customers to believe.

According to recent research out of Johns Hopkins, the tax prep chains you see advertised on the sides of buses, or hear about in radio ads, are not necessarily the saviors they claim to be. Paul Weinstein, study co-author and director of the university’s Graduate Program in Public Management, found that tax prep vendors tend to be used by people living in poor zip codes (measured by how many people in the area qualify for the Earned Income Tax Credit, a tax credit aimed at helping low- and middle-income families).

As the study’s authors note, such vendors can charge upward of $500 to complete and file a single tax return, which can substantially eat into the benefits that the EITC is supposed to provide. In other words: Too much of the money intended for the working poor is actually ending up in the pockets of these companies.

You might argue that paying these chains to complete your taxes could be worth it, since they’re less likely to make errors. But it’s not clear that that’s true, either: the Government Accountability Office reports a 94 percent error rate among paid tax preparers.

The good news is that a number of non-profits offer free tax-prep to low- and middle-income earners.

(And actually, this year you have until April 18.)



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